May 17, 2024

10 Common Causes of Underpayments in Healthcare RCM

Brandon Pittman
VP of Business Development
at Boost Healthcare
Revenue Cycle

With a burdened workforce becoming more overwhelmed and, according to recent data from the American Hospital Association, 50% of hospitals and health systems reporting having more than $100 Million in accounts receivables for claims older than six months, it’s understandable that underpayments are often deprioritized and underworked within the revenue cycle.  

As unrelenting financial pressures from countless angles continue to be levied on healthcare providers and their revenue cycle teams, losing recoverable revenue is proving to not be a sustainable strategy.

The question stands - where do I find recoverable underpayments?

What Are The Most Common Causes of Underpayments in Healthcare Revenue Cycle Management?

To start, an underpayment is a partial payment for the services rendered by the healthcare provider.  Whether they occur because a payer didn’t reimburse the full amount owed or because the healthcare provider didn’t fully bill for the services rendered, the result is the same - money saved by the payer translates to revenue lost by the healthcare provider.

Underpayment causes are categorized as either payer-related or provider-related.

Common Payer-Related Causes of Underpayments

Bundling & Downcoding

When a payer bundles services together or downcodes billed services to lower-paying codes, some may be done incorrectly resulting in underpayments for healthcare providers.

Contractual Underpayments

The payer doesn’t fully pay a claim according to the terms outlined in the contract.  

Coordination of Benefits Issues

Underpayments can occur when primary and secondary insurers do not coordinate benefits properly.

Denials Converted to Underpayments

Inappropriately denied claims that are reprocessed and paid at a lesser rate can result in underpayments.

Payer Policy Changes

Changes in payer policies, such as reimbursement rates or coverage criteria, can lead to underpayments if providers are unaware or do not properly adjust to these changes.

Processing Errors

The payer makes a clerical error when calculating the amount owed to the healthcare provider or when processing the claim for payment.

Common Provider-Related Causes of Underpayments

Charge Capture

From missing billable charges to CDM inaccuracies and more complex charge capture issues, underpaid claims for the services rendered can lead to lost revenue.

Coding Errors

Inaccurate or inappropriate medical coding can lead to underpayments as payers may reimburse at lower rates for services coded incorrectly or documented improperly.

Documentation Deficiencies

Incomplete or insufficient documentation can lead to underpayments as payers may require detailed documentation to justify the services billed.

Revenue Cycle Processes

From contract load missteps to billing-related issues and overlooked specific payer edits, underpayments can lead to additional revenue leakage.

As revenue cycle professionals continue to grapple with mounting financial pressures and overwhelming workloads, underpayments may be deprioritized as resources are needed elsewhere.  After all, underpayments tend to be a more difficult type of claim to work than most.

Ready to have dedicated experts prioritize recovering your underpayments? Request a free Recovery Assessment with Boost Healthcare today develop a game plan for recovering your underpaid revenue.

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